Question 1

In 2002,the Enron corporation was accused of falsifying information regarding liabilities on Enron's balance sheets,thereby

Accepted Answer

A)  increasing Enron's assets on the balance sheet. 
B)  reducing Enron's profit on the balance sheet. 
C)  increasing Enron's net worth on the balance sheet. 
D)  reducing Enron's net income on the income statement. 
A)  increasing Enron's assets on the balance sheet. 
B)  reducing Enron's profit on the balance sheet. 
C)  increasing Enron's net worth on the balance sheet. 
D)  reducing Enron's net income on the income statement.

Question 2

What type of business has the potential for double taxation of profits and why?

Accepted Answer

Corporations earn profits that

Question 3

An explicit cost is

Accepted Answer

A)  a nonmonetary opportunity cost. 
B)  a cost specifically related to government rules and regulations. 
C)  a cost that involves spending money. 
D)  a cost unique to corporations. 
A)  a nonmonetary opportunity cost. 
B)  a cost specifically related to government rules and regulations. 
C)  a cost that involves spending money. 
D)  a cost unique to corporations.

Question 4

What does limited liability mean?

Accepted Answer

A)  The owners of the business are personally responsible for paying expenses incurred by the business. 
B)  Only employees can have a claim on the assets of the business. 
C)  The personal assets of the owners cannot be claimed if the business is bankrupt. 
D)  Anybody with a liability against a firm can claim only what their liability refers to. 
A)  The owners of the business are personally responsible for paying expenses incurred by the business. 
B)  Only employees can have a claim on the assets of the business. 
C)  The personal assets of the owners cannot be claimed if the business is bankrupt. 
D)  Anybody with a liability against a firm can claim only what their liability refers to.

Question 5

Which of the following takes place in the direct finance market?

Accepted Answer

A)  Firms borrow funds from banks. 
B)  Deposits from savers are accumulated and loans made to borrowers. 
C)  Ownership in corporations is sold in the form of preferred stock. 
D)  Banks offer savings accounts to customers. 
A)  Firms borrow funds from banks. 
B)  Deposits from savers are accumulated and loans made to borrowers. 
C)  Ownership in corporations is sold in the form of preferred stock. 
D)  Banks offer savings accounts to customers.

Question 6

What is different about buying stocks and buying bonds?

Accepted Answer

A)  A stock can possibly pay dividends forever, but bonds have a fixed number of payments. 
B)  Differences of opinion about a stock's future may vary considerably but there is less difference about a bond's future. 
C)  The future growth of a stock is more uncertain than the payments of a bond. 
D)  All these are differences between stocks and bonds. 
A)  A stock can possibly pay dividends forever, but bonds have a fixed number of payments. 
B)  Differences of opinion about a stock's future may vary considerably but there is less difference about a bond's future. 
C)  The future growth of a stock is more uncertain than the payments of a bond. 
D)  All these are differences between stocks and bonds.

Question 7

Corporations are legally owned by their shareholders.

Accepted Answer

A) True 
 B)False

Question 8

How are corporate profits taxed in the United States?

Accepted Answer

A)  Earnings are taxed first by state sales taxes and then as corporate profits at the Federal level. 
B)  Earnings are taxed first as personal income then as corporate profits at the Federal level. 
C)  Earnings are taxed first as corporate profits then as personal income after dividends are paid. 
D)  Corporate profits are not taxed at all. 
A)  Earnings are taxed first by state sales taxes and then as corporate profits at the Federal level. 
B)  Earnings are taxed first as personal income then as corporate profits at the Federal level. 
C)  Earnings are taxed first as corporate profits then as personal income after dividends are paid. 
D)  Corporate profits are not taxed at all.

Question 9

How do unlimited and limited liability differ?

Accepted Answer

Unlimited liability means that

Question 10

How do a sole proprietorship and a corporation differ?

Accepted Answer

A)  Proprietorships have unlimited liability while corporations have limited liability. 
B)  Corporations can issue stocks and bonds, while proprietorships cannot. 
C)  Corporations face more taxes than do proprietorships. 
D)  All of these are differences between the two types of businesses. 
A)  Proprietorships have unlimited liability while corporations have limited liability. 
B)  Corporations can issue stocks and bonds, while proprietorships cannot. 
C)  Corporations face more taxes than do proprietorships. 
D)  All of these are differences between the two types of businesses.

Question 11

The existence of the principal-agent problem

Accepted Answer

A)  increases the risk of buying stock in a corporation. 
B)  increases the risk of becoming the sole proprietor of a business. 
C)  implies that managers that have the same incentives as the board of directors. 
D)  does all of the above. 
A)  increases the risk of buying stock in a corporation. 
B)  increases the risk of becoming the sole proprietor of a business. 
C)  implies that managers that have the same incentives as the board of directors. 
D)  does all of the above.

Question 12

Southwest Airlines wants to raise $20 million to finance the renovation of their corporate offices,and the company wishes to raise the funds through direct finance.Which of the following methods could it use?

Accepted Answer

A)  It could issue $20 million in stocks. 
B)  It could sell $20 million in bonds. 
C)  It could borrow $20 million from a bank. 
D)  It could choose either A or B. 
A)  It could issue $20 million in stocks. 
B)  It could sell $20 million in bonds. 
C)  It could borrow $20 million from a bank. 
D)  It could choose either A or B.

Question 13

A bond is a financial security that represents

Accepted Answer

A)  ownership in a corporation. 
B)  the portion of profits paid to shareholders. 
C)  the interest rate paid on a share of stock. 
D)  a promise to repay a fixed amount of funds. 
A)  ownership in a corporation. 
B)  the portion of profits paid to shareholders. 
C)  the interest rate paid on a share of stock. 
D)  a promise to repay a fixed amount of funds.

Question 14

In August 2011,Standard & Poor's (S&P)changed its rating on U.S.Treasury bonds from ________ based on the state of the federal government's budget deficit.

Accepted Answer

A)  "A" to "D" 
B)  "A" to "AAA" 
C)  "A+" to "B+" 
D)  "AAA" to "AA+" 
A)  "A" to "D" 
B)  "A" to "AAA" 
C)  "A+" to "B+" 
D)  "AAA" to "AA+"

Question 15

If a corporate bond with face value of $1,000 has an interest rate of eight percent paid once a year for a term of 30 years,what is the size of the coupon payment?

Accepted Answer

A)  $1,000 
B)  $300 
C)  $80 
D)  $8 
A)  $1,000 
B)  $300 
C)  $80 
D)  $8

Question 16

If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices,this is an example of

Accepted Answer

A)  a bond market transaction. 
B)  indirect finance. 
C)  a stock market transaction. 
D)  direct finance. 
A)  a bond market transaction. 
B)  indirect finance. 
C)  a stock market transaction. 
D)  direct finance.

Question 17

In 2011,the dividend yield on Abercrombie & Fitch (ANF)stock fell from a high of 1.39% in January to 0.96% in July.Which of the following would have generated that result?

Accepted Answer

A)  The closing price of ANF stock fell. 
B)  ANF announced a decrease in the dividend it would pay per share. 
C)  The price-earnings ratio rose. 
D)  ANF issued bonds with a coupon rate equal to 1.39%. 
A)  The closing price of ANF stock fell. 
B)  ANF announced a decrease in the dividend it would pay per share. 
C)  The price-earnings ratio rose. 
D)  ANF issued bonds with a coupon rate equal to 1.39%.

Question 18

The only type of business that faces limited liability is a corporation.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is an advantage of starting a new business as a proprietorship?

Accepted Answer

A)  The owner has limited personal liability. 
B)  A proprietorship has few government rules and regulations to comply with. 
C)  Business profits are not taxed. 
D)  A proprietorship can easily attain additional funding. 
A)  The owner has limited personal liability. 
B)  A proprietorship has few government rules and regulations to comply with. 
C)  Business profits are not taxed. 
D)  A proprietorship can easily attain additional funding.

Question 20

What is the Congressional act,enacted in 1933 and repealed in 1999,which prevented financial firms from being both commercial banks and investment banks?

Accepted Answer

A)  the Sarbanes-Oxley Act 
B)  the Glass-Steagall Act 
C)  the Taft-Hartley Act 
D)  the Cellar-Kefauver Act 
A)  the Sarbanes-Oxley Act 
B)  the Glass-Steagall Act 
C)  the Taft-Hartley Act 
D)  the Cellar-Kefauver Act

Exam 8: Firms, the Stock Market, and Corporate Governance

In 2002,the Enron corporation was accused of falsifying information regarding liabilities on Enron's balance sheets,thereby

What type of business has the potential for double taxation of profits and why?

An explicit cost is

What does limited liability mean?

Which of the following takes place in the direct finance market?

What is different about buying stocks and buying bonds?

Corporations are legally owned by their shareholders.

How are corporate profits taxed in the United States?

How do unlimited and limited liability differ?

How do a sole proprietorship and a corporation differ?

The existence of the principal-agent problem

Southwest Airlines wants to raise $20 million to finance the renovation of their corporate offices,and the company wishes to raise the funds through direct finance.Which of the following methods could it use?

A bond is a financial security that represents

In August 2011,Standard & Poor's (S&P)changed its rating on U.S.Treasury bonds from ________ based on the state of the federal government's budget deficit.

If a corporate bond with face value of $1,000 has an interest rate of eight percent paid once a year for a term of 30 years,what is the size of the coupon payment?

If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices,this is an example of

In 2011,the dividend yield on Abercrombie & Fitch (ANF)stock fell from a high of 1.39% in January to 0.96% in July.Which of the following would have generated that result?

The only type of business that faces limited liability is a corporation.

Which of the following is an advantage of starting a new business as a proprietorship?

What is the Congressional act,enacted in 1933 and repealed in 1999,which prevented financial firms from being both commercial banks and investment banks?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: The Responsiveness of Demand and Supply

The Economics of Health Care

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: The Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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